Although there are many good reasons for you to buy a home, wealth building ranks among the top of the list. We call home ownership the best “accidental investment” most people ever make. But, we believe when it is done right, home ownership becomes an “intentional investment” that lays the foundation for a life of financial security and personal choice. There are solid financial reasons to support your decision to buy a home, and, among these, equity buildup, value appreciation, and tax benefits stand out.
Looking for your home begins with carefully assessing your values, wants, and needs, both for the short and long terms. For many buyers, buying a house for the first time will be one of the biggest decisions you have made yet. When buying your first home, because the process is brand new to you, it is very easy to make mistakes. Mistakes can, in fact, cost you money. Below, we have outlined some first-time buyer advice that will act as a guide when you start planning to buy your first home in Florida or anywhere else in U.S.
Finding Your Home
Have you been dreaming of buying a lake home, with a long walkway, a patio, and a little garden in the backyard, yet you work in the city? The closest lake is miles away. Is it feasible to purchase a home at that location due to the distance from your job? Almost anything is possible, but your lifestyle will determine the house and location that will be most suitable for you and your family. Being a first time home buyer and entering into the housing market without clearly defined specifications of what you feel will make the perfect home and the most sense for your commute and your family can be quite confusing. If you already have an idea of what you want in a house, these expectations should be trimmed in line with what is realistically obtainable.
Here are some questions you want to ask yourself when purchasing a home:
- What do I want my home to be close to?
- How much space do I need and why?
- Which is more critical: location or size?
- Would I be interested in a fixer-upper?
- How important is home value appreciation?
- Would I be interested in a condo?
- Would I be interested in new home construction?
- What features and amenities do I want? Which do I really need?
Financing and Mortgage Fees You Can Expect to Pay
While you may find the thought of home ownership thrilling, the thought of taking on a mortgage may be downright chilling. Many first-time buyers start out confused about the process or nervous about making such a large financial commitment, but if you are paying rent, you very likely can afford to buy. An experienced loan officer or mortgage specialist will provide you with an easy-to-understand process to securing the financing for your first home.
A less than perfect credit score will not necessarily prevent you from buying a home. There are numerous real estate financing options, so a short meeting with your loan officer will reveal the options available to you which best fit your needs. It should be noted that several considerations like your financial history and credit score will be considered before you are approved. Your loan officer will guide you in choosing the best option for financing the purchase of your home. Your choice for financing should be a package that will be properly serviced with your income, leaving you with enough funds to cater to other important future costs such as home repairs or medical expenses.
Be sure to ask plenty of questions and clarify the exact fees you will be expected to pay to avoid any hidden or unexpected charges.
Below are some of the fees you can expect to pay if you are financing your home.
- Loan application fee – Some lenders charge a fee to process your application. Not all lenders charge this fee.
- Credit report fee – This is the fee for pulling your credit report. It is typically a third party fee that is paid by the buyer.
- Mortgage origination fee – This is the fee you pay your lender to prepare the mortgage for closing.
- Discount points – A borrower can purchase buy downs to lower subsequent interest payments. This is an optional fee.
- Survey – If you are financing a home, this is a requirement. A survey provides information on the property boundaries and locations of structures or fences. This is typically a buyer expense unless stated otherwise in the contract.
- Appraisal – A lender will want assurance that they are not lending on a home that is valued less than the agreed upon contract price.The lender orders the appraisal, but it is typically a buyers expense due to the fact that its part of the loan. The appraisal will determine the fair market value of a home. If an appraisal comes in lower than the purchase price, view your low appraisal options here.
- Private mortgage insurance – Also referred to as PMI, this is the fee lenders charge to protect themselves when they are financing a large portion of the home. If you are putting down 20% or higher, you may not be required to purchase PMI insurance.
4 Important Things You Need When Buying a Home
There are 4 important things you will need when buying your first home. This list will cover some of the most common items and the costs involved. Keep in mind, there may be additional things required of you by your lender such as copies of your tax returns or employment verification.
- Mortgage pre-approval: If you are not paying cash for your home, you will need a mortgage pre-approval from your mortgage lender. This is the seller’s assurance that they will be taking the property off the market for a qualified buyer. There is no charge for a mortgage pre-approval.
- Escrow deposit: Once you make an offer you will be required to put down an escrow deposit, also referred to as a good faith deposit. This proves that you are serious about buying the home and assures the seller that you will not walk away from the transaction. In Sarasota, Florida, earnest money is usually 10% or less and is held by a title company or the listing brokers office. In many cases you can get your earnest money back if something goes wrong with the home purchase, otherwise, the earnest money is applied towards your down payment and closing costs.
- Money for your down payment and closing costs: Your lender can provide you a good faith estimate which breaks down all your costs and provides an estimated amount of funds that you will need to bring to closing. Your down payment will depend on the type of loan you decide to go with, so consult your lender. The lack of a substantial down payment should not prevent you from making your first home purchase. Many first time home buyers opt for FHA financing which requires a lower down payment of 3.5%. If eligible, VA loans and USDA loans require no downpayment. In addition to your down payment, there are closing costs. Closing costs in Sarasota, Florida are typically 1-1.5% of the purchase price.
- Home Inspection: Unlike most major purchases, once you buy a home, you can’t return it if something breaks or doesn’t quite work like it’s supposed to. For this reason, once you are under contract, you will want to perform a home inspection.The home inspector will determine if there are any major issues in the home. In Florida, the standard home inspection period is 15 days. Depending on whether it is a single family home or condo, and what additional items you choose to have inspected, such as an AC or pool, home inspections can run anywhere between $325 – $700 in the Sarasota, Florida area.
Home Ownership Expenses
- Property taxes – For some, property taxes may be included in your mortgage payments, but for others, you will receive a yearly tax bill. In the Sarasota, FL area, depending on the community your taxes can range from $900 per year to over $16,000 per year depending on the location or the community.
- CDD fees – The Community Development District fee (CDD) is a common fee for newer communities in the Sarasota, FL area. The developer of the community borrows money from the county government for the community infrastructure and it is paid back by the homeowners. The fee is included in the annual property taxes. I have seen these fees range anywhere between $900 per year to $7000+ per year.
- Homeowner’s insurance – Property insurance is a requirement by lenders. Prices can vary depending on the type of property or the age of the property. It is typically escrowed into your monthly mortgage payment.
- Utility bills – Water, sewer, trash, gas, and electric are examples of utilities you will need to consider when purchasing a home. To get an idea of the cost of each, ask the current owner for the average utility costs.
- Homeowner association fees or condo fees – If you purchase a condo, you can expect condo fees yet, not every community has a homeowners association. Association fees will vary according to the community and amenities. Fees are typically paid either monthly, quarterly, or annually.
- Home maintenance – Attention to your home’s maintenance needs is essential to protecting the long-term value of your investment. Every home needs maintaining so make sure you have money set aside for upkeep or repairs.
- Lawn service – If you plan on maintaining your own lawn, you will need to invest in a mower, yard tools, and landscape materials. It is wise to estimate the costs of these items prior to purchasing a home.
- Pool service – In Florida, pools are commonplace in many homes. Prior to purchasing a home, it is a good idea to research the estimated cost of what it is to maintain a pool or to have someone maintain it for you.
Current Real Estate Market Trends
Real estate markets have varying trends depending on the state and community. Prior to purchasing a home, conduct housing market research to understand the current market trends that influence the real estate market where you want to buy your home. Look out for market increases or decreases in statistics such as the average home price, the average number of days on the market, and the monthly supply of inventory. Lower inventory supplies indicate a seller’s market, whereas a higher supply of inventory indicates a buyer’s market. Being armed with this information will benefit you in the negotiating process.
Pets and Homeownership
If you are a pet lover then the type of home you buy should have the necessary accommodation to cater to your pets. If you are purchasing a home which is part of a condo or Homeowner’s Association (HOA), then there may be restrictions as to the number of pets allowed, the size of the pet, and the breed. Prior to making an offer, be sure to confirm the community pet restrictions. The last thing you want to happen is to move into your new home, then be asked to remove your pet.
Learn more about HOA’s and their homeowner restrictions here.
Do Location and Accessibility Matter?
A commonly used real estate phrase is location, location, location, so yes, your ideal home should be in a good location. This decision will actually depend on your lifestyle and occupation. Houses in centralized areas typically cost more than houses located on the outskirts of the cities. Getting a home in an area where you can easily access the transportation system, markets and malls will be convenient but may cost more. If you want to live close to the beach, then you can expect to pay more. So in the end, you will need to decide if living further away from these conveniences outweighs paying more for a home.
Buying your first home doesn’t need to be complicated. There are real estate agents that can deliver excellent services to help you make the best choice from the available options. If you are buying a home for the first time, it is a good idea to seek professional assistance. When seeking the services of a real estate agent to find your perfect home, there is no cost to you, yet they are a great resource for providing you information on things to know when buying your first home.
Talking with a real estate professional will help you understand many other factors that should be considered before you make your final selection from the homes available on the market. Buying a home is an emotional decision; however, your home should be perfect and the home buying process should be smooth. Sadly, any mistakes made along the way may be difficult to correct, which is why it is important to use an experienced real estate broker for all your real estate concerns.
When choosing a real estate agent, qualifications are important. However, finding a solid, professional agent means getting beyond the resume, and into what makes an agent effective. Use the following questions as your starting point in hiring your licensed, professional real estate agent:
- Why did you become a real estate agent?
- Why should I work with you?
- What do you do better than other real estate agents?
- What process will you use to help me find the right home for my particular wants and needs?
- What are the most common things that go wrong in a transaction and how would you handle them?
- What are some mistakes that you think people make when buying their first home?
- What other professionals do you suggest we work with and what are their credentials?
- Can you provide me with references or testimonials from past clients?
If you have any questions or need professional real estate assistance, please do not hesitate to contact us. We pride ourselves in meeting clients needs and exceeding their expectations. We cover Sarasota, Bradenton, Lakewood Ranch, and Longboat Key and have partners in the surrounding areas or across the nation as well. We look forward to speaking with you.